On rental property I checked active participation, and material participation, but I am not being allowed my losses on my CA return. CA sch E wks 2C & 2D is checked.

[mwebb4]

California tax form is disallowing $20K of my $26K loss on my property in California.

[DanO · Accepted solution]

I don't know what you income level is, but that could be the reason.

California conforms to the Federal special allowance rule for those who actively participate in rental real estate activities.

Under this rule, up to $25,000 in real estate losses can be deducted per year if you actively participate.  This allowance is phased out for taxpayers whose modified adjusted gross income exceeds $100,000 and is completely eliminated when the MAGI exceeds $150,000.

A real estate professional on the other hand is not limited by this allowance.

Click here for CA Form 3801 for Passive Activity Loss to calculate the allowable loss with active participation.